TEXAS APPLESEED
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: R1N3064-AC50
September 15, 2004
Dear Mr. Feldman,
Texas Appleseed, a non-profit, non-partisan organization committed to
positive social change in Texas, is concerned about the proposed rules
that would change the definition of "small bank" and thus impact the,
Community Reinvestment (CRA) obligation of a number of Texas banks that
currently serve both urban and rural areas. Texas has had a dramatic,
increase in predatory lending in the past decade. Any measure that would
reduce access to credit and services for lower income Texas will only
exacerbate that disturbing trend.
We are concerned about increasing the "small bank" asset limit to $1
billion and reducing the CRA obligations of banks that fall into the
$250 million to $1 billion basket. Texas is home to a large and growing
low- to moderate-income population that includes people in economically
struggling rural areas, new immigrants, and the working poor. The FDIC
has made great strides in working with financial institutions to serve
new immigrants, and it is in that context that this policy proposal is
particularly surprising. This proposal would reduce incentives for
financial institutions to reach out to marginalized communities,
particularly with respect to smaller community banks whose entire CRA
business model involves targeting this growing market.
Your sister financial regulators, the Board of Governors of the
Federal Reserve System and the Office of the Comptroller of the Currency
have both already rejected similar proposed rules. It is unclear to us
why the FDIC would want to pursue such a policy on its own despite
significant evidence that the policy would divert much needed investment
and product innovation from our poorest communities. We respectfully
urge you to maintain consistency in the CRA
regulatory scheme. National banks that are making great strides under
the CRA could also find themselves at a competitive disadvantage in
Texas (and elsewhere) against state non-member banks, and we likewise
dread the possibility that the proposed rules could reopen old wounds in
the perennial state versus national charter debate.
Three other components of the proposed rule concern us: the broad
definition of "rural community," the reduced reporting requirements for
banks with assets between $250 million and $1 billion, and the overly
flexible system for assessing bank community development activities.
The proposed community development criteria provide CRA credit for
serving any individual residing in a rural community. There is no focus
on low- to moderate-income rural residents, which is the community in
greatest need and with the fewest financial service options. Allowing
credit for generally serving rural communities would allow banks to
serve the most profitable rural community members and businesses and
receive CRA credit, which goes against the spirit of the Community
Reinvestment Act.
The elimination of certain reporting requirements for banks that
would benefit from the new "small bank" definition will hinder
transparency in banking practices. It is important to have key community
development information available so that local areas can assess how
well their banks are serving their communities. Without sufficient
statistical information, it is difficult for a community to analyze and
understand how much effort a bank is making to serve the needs of lower
income community members.
Finally, the new system for assessing a bank's community development
activities is overly flexible and encourages banks to focus on the
easiest activities rather than on those that are most beneficial to the
less privileged members of the community the bank serves. It is
necessary for banks to support community organizations serving lower
income population groups. These activities are crucial, but cannot have
a significant impact without banks expanding reasonably priced lending
opportunities for low- and moderate- income individuals and providing
innovative financial service products to make mainstream financial
services both accessible and affordable for all Americans. It is the sum
of efforts rather than any individual part that creates_true community
impact.
The FDIC has launched a wonderful financial education campaign
focused on banking the unbanked and creating more sophisticated
financial service consumers. The impact of the new rules would be to
reduce financial service options for those benefiting from the FDIC
financial education program. It is beneficial to teach people new
information, but with that information must come possibilities. Any
community development test should assess all of the aspects of community
development and require that banks do their best to serve the financial
service and lending needs of their entire community.
Our organization believes strongly that profit and community benefit
can coexist. The Community Reinvestment Act is a perfect example of how
the government can positively impact communities while preserving the
need of banks to be profitable and sound. Adopting the proposed rule
would tip the balance to the side of profit, leaving our most needy
communities at an even greater disadvantage. Such a policy may be
beneficial to banks in the short term, through cutting expenses related
to the CRA examination process. In the long term, it has great potential
to decrease asset building for lower income Americans, limiting the
number of people moving out of the low- to moderate-income category. The
effect of this policy will end up hurting banks by shrinking the
potential future upper income customer base.
We thank you for the opportunity to weigh in on this important issue,
and hope that you will give serious consideration to our comments. The
CRA has proved to be an effective tool in building low-income
communities. Why change something that is working?
Sincerely,
Michael Lowennberg
Chairman of the Board
Texas Appleseed
Austin, TX
